PPPRA blames hike in kerosene price on smuggling, blending of diesel

The Executive Secretary of the Petroleum Products Pricing Regulatory Agency (PPPRA), Mr Reginald Stanley, yesterday identified smuggling caused by huge arbitrage in price, use of kerosene in diesel blending and fuelling aircraft, as well as blending cut-backs to produce emulsion used in road construction, as some of the factors responsible for the high cost of kerosene in the country. In a statement issued last night on “The Complexity of the Kerosene Value Chain,” Stanley said kerosene unfortunately, has one of the longest chains in handling, adding that at any point it changes hand, it is at a premium, hence the very high cost at the retail end.

According to him, there are two grades of Kerosene – Aviation Turbine Kerosene (ATK) and House Hold Kerosene (HHK). ATK is used in fuelling aircrafts while HHK is used in domestic cooking and lighting homes,” he said. Stanley said the current global trend was for refineries to produce mainly ATK for the aviation market.

“However, Nigeria, Venezuela, India and Libya are among the few countries, whose refineries are still producing HHK,” he said.
Stanley noted that due to the inability of Nigeria’s refineries to produce enough kerosene to meet the increasing demand, it became necessary to import the ATK grades Kerosene commonly referred to as Dual Purpose Kerosene (DPK). He described DPK as superior diesel as it blends perfectly well with diesel, noting that just blending one litre of kerosene gives the marketer N100 per litre extra profit. “Consequently the temptation to blend DPK with AGO is very high,” he added.

He identified this as the beginning of the kerosene challenge, saying that imported kerosene goes into many uses.¨According to him, part of it finds its way into the aviation market while a substantial quantity finds its way into the blending of cut-backs to produce emulsion used in road construction.

“A sizable quantity makes its way through the boarders into neighbouring countries because of the huge arbitrage opportunity, while the remaining goes into diesel blending. Consequently, what is left entering the real domestic market is very much restricted,” he added.